Leveson Shows CEO Charisma Not Enough

The questioning of Rupert Murdoch at the Leveson inquiry into press ethics in the UK highlighted the business dealings and management methods of one charismatic CEO just as Facebook, led by another, is heading to market and Apple is fending for itself after Steve Jobs.

News Corporation CEO, chairman and controlling shareholder Rupert Murdoch was questioned last week for around eight hours over two days by Robert Jay QC, counsel assisting the inquiry set up by the Cameron government to throw light on the conduct of the UK press. The inquiry came in the aftermath of the telephone hacking scandal that led to the closure of the News of the World newspaper.

Mr. Jay's characteristically British understated and polite questioning tried to elicit from Murdoch the extent of his influence on government decision making dating back to the days of the Wilson and Thatcher governments.

Murdoch stuck to his game plan throughout. He never asked politicians for anything in exchange for the support of his newspapers, he said. Nor, contrary to the widely held view of how he did business, did he direct editors to support policies in return for treatment favouring his business interests.

Murdoch even downplayed his own influence within the company he has led for six decades. In his mind, powers are delegated widely to executives.

Lord Justice Leveson intervened at one stage to put the view that his employees would have been at pains to anticipate what Murdoch would do under any circumstances confronting them and that, consequently, Murdoch might never have to issue an instruction explicitly. Thousands of employees were paid to anticipate how he wanted them to react, Leveson hypothesised.

Murdoch also gave the impression that he was disconnected from many of the events that were occurring in London while phone hacking was being used by News of the World journalists to source stories.

If we take him at his word, internal reporting was often informal, intermittent and irregular as he relied on trusted executives to oversee his best interests. Those executives in London included Les Hinton who had acted as one of his lieutenants for five decades, his son James and the dazzlingly coiffed Rebekah Brooks, clearly a Murdoch favourite.

The questioning of James Murdoch at the inquiry over the two days prior to Murdoch senior taking the witness chair showed that he, in turn, had unquestioningly taken the word of others on critical issues of corporate probity.

Through inexperience the junior Murdoch had failed to pursue the allegation of phone hacking and the reasons for an especially large payout to football players association boss, Gordon Taylor, his father now concludes.

While the UK News Corporation empire has included some hard nosed editors from time to time prepared to hand out some pretty rough treatment, most of the business acumen within the corporation seems to have gravitated away from London to the USA. Based on Murdoch's testimony, News Corporation appears to have been largely bereft of independent business nous in the UK once he had departed to look after interests elsewhere.

Meanwhile, this month, social media phenomenon Facebook announced that it would pay one billion dollars for Instagram, a two year old company offering an on-line photo sharing service with a rapidly growing user base but no profits.

However much head scratching this transaction might have prompted amongst financial analysts, the other aspect of the story that says much about the culture of the Facebook business model is the way head honcho Jeffery Zuckerberg did the deal.

Apparently, the Facebook founder and dominant personality negotiated with Instagram co-founder Kevin Systrom over three days at his Palo Alto home and informed the Facebook board members only on the morning of the meeting that was called to approve the resulting transaction.

Zuckerberg is clearly in charge at Facebook in much the same way as Murdoch has dominated News Corporation. The SEC filings for the upcoming Facebook public offering show that Zuckerberg has entered into agreements with other Facebook shareholders which will give him Murdoch-style voting power over 57% of Facebook shares despite having a minor direct economic interest in the company of 22%.

While brimming full of ideas about how to transform social interaction across the globe and with a free hand to set corporate strategy, Zuckerberg still risked being without the business nous needed to carry his ideas into the commercial domain. His appointment of former Google executive Sheryl Sandberg as Facebook chief operating officer responsible for building the revenue base seems to have been a critical change in the operational and financial direction of the company.

Even Apple, the gold standard for multimedia success, could not rely solely on the marketing brilliance and legendary tenacity of Steve Jobs. Ron Johnson is credited with the strategy that has given Apple the most successful retail stores in the world with revenue averaging $6,000 per square foot.

The Apple strategy has become such a benchmark for success that Johnson has been recruited by struggling US department store retailer J C Penny to engineer a resurrection of the department store genre at the heart of its business model as it tries to escape a buffeting from internet retailers, boutique offerings and a financially stressed middle class.

The Leveson inquiry is shining a light on many aspects of executive behaviour including the role of the executive owner and the interaction between his personal motivations and the interests of his shareholders. This might be the least interesting aspect of the inquiry to Leveson, himself, while of far greater importance to investors.

Through its analysis of Murdoch's News Corporation, the Leveson inquiry is highlighting how the charismatic chief with a compliant board can risk failure. The inquiry is showing how the likes of Murdoch, Zuckerberg and Jobs need those of slightly more mundane talents to turn bright ideas into commercial opportunities and protect companies from the threats to survival which need to be confronted from time to time.

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